Digital payments rising but cash is still king in smaller cities, says report

Digital payments

Hyderabad: There are 889 million credit and debit cards but only 4.59 million point of sale terminals till September 2019. This is an increase of 35.3 per cent over 3.39 million POS same period last year.

Between September 2018 and September 2019, there was an addition of about 11 million credit cards and reduction of about 154 million debit cards. The rise in credit cards may be attributed to the growing digital payments. The fall in debit cards is likely due to the discontinuation of magnetic stripe and the mass closure of accounts with zero balance, said Worldline India Digital Payments Report.

In all, credit card transactions stood at 540 million by volume, up 25.6 per cent(valued Rs 1.8 lakh crore) and debit card transactions stood at 3.7 billion, up 6.4 per cent over the previous year (now valued at Rs 10.1 lakh crore).

Credit cards accounted for about 30 per cent of the transactions on the POS terminal but in terms of value they contributed about 51 per cent of the total spent on the POS terminals. This is mainly because Indian customers use credit cards for purchasing high value items. The average ticket size on POS terminals for credit card transactions was Rs 3,324 and Rs 1,357 for debit cards transactions.

The transactions at POS terminals increased from 1.5 billion in third quarter of last year to 1.8 billion transactions, a growth of 18.3 per cent. The value of transactions at POS terminals increased from Rs 2.8 lakh crore last year to 3.5 lakh crore this year, up by 23.2 per cent.

While the number of card transactions done at merchant locations is on the up, ATM withdrawls data suggest that cards are being used for withdrawing cash in a big way as there are no avenues to use their cards or digital instruments. However, the challenge is to move ATM withdrawals into digital payment transactions.

The report said that e-payment acceptance should not limited to deploying terminals but should also facilitate transactions through multiple modes like QR, BQR and UPI among others.

Worldline is a transaction facilitator. It tracks digital payment ecosystem including merchant acquiring, card issurance, EMI solutions for NBFCs, loyalty solutions for petroleum companies, internet payment gateway, national electronic toll collection, risk mitigation and other value added services. It also tracks consumer payment spends across retail payment platforms.

It said that payments for goods and services at physical merchant locations through a digital medium will continue to grow leaps and bounds in the coming years. However, more than 90 per cent of the transactions still are made in cash in tier 3 cities and below. The improvement will be a slow crawl. Digital payment solutions should be simple for buyers and at the same allow merchants to verify that they are receiving the monies due to them. For multiple reasons, there is an innate trust in cash and by extension distrust in digital payments, it said.

Digital paymentsMerchants, particularly the smaller ones, should be given multiple revenue opportunities through the POS terminal or mobile. The report further said that government should incentivise the merchant acquiring industry through the Acceptance Development Fund, which the Reserve Bank of India has recently notified that it will be operationalised January next year. This will expedite the task of enabling Tier III and IV markets with acceptance infrastructure, according to Deepak Chandani, Manging Director, Worldline South Asia and Middle East, it said.

To boost the acceptance of card payments among merchants, the NPCI has revised the merchant discount rate for Rupay cards to 0.6 per cent from the earlier 0.9 per cent for transactions above Rs 2,000 with a maximum cap of Rs 150 per transaction from October this year as opposed to a higher cap of Rs 1,000 per transaction earlier. It is even lower for Bharat QR and BHIM UPI, the report noted.

It noted that despite the push from the Government to increase awareness about digital payments, cash is still king.

The total volume of UPI transactions in the third quarter saw a 183 per cent increased from 2.7 billion. The transaction value increased 189 per cent this year from Rs 4.6 lakh crore last year.

Mobile wallets
India is the world’s second largest market for mobile payments. The number of transactions done on mobile wallets in third quarter was 1.04 billion, an increase of just five per cent over last year. The value was Rs 466 lakh crore, an increase only 2 per cent over last year.

The key hindrances to the growth of digital payments are higher cost of acceptance infrastructure, lack of financial literacy amongst smaller merchants, high propensity of households to save in case and the unorganised cash-intensive SMEs.

Key users
Hyderabad figures in the top ten cities with respect to highest number of transaction. Other cities are Bengaluru, Chennai, Mumbai, Pune, Kolkata, New Delhi, Gurgaon, Coimbatore and Ernakulam.

Grocery, restaurants, petrol stations, apparel stores and speciality retail segments accounted for 65 per cent of the volume and 40 per cent of the value of transactions. Jewellery stores accounted for only one per cent of the total transactions but contributed six per cent of the value of transactions.

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